The action remains such that it is correcting a long-term overbought condition, and that overvalued sectors are coming in. We would look for a test of 442 on a bounce and would start to add back hedges there.
We still have strong concerns about performance in the second quarter, especially in the technology sector, and other areas heavily weighted in MGK. If the market corrects, as we believe it should, then XLB, XLP, dividend ETFs should outperform.
We continue to look for a move on SPY (SPDR® S&P 500 Trust) to the 458 to 462 level. Our big concern is that GLD advances on stochastic recycles, but then falls quickly when overbought – which is a function of negative accumulation.
Internals did not improve much on last week’s rally, so we still have concerns when the next short-term overbought readings hit. The good charts seem to be clustered in what passes for “Value” stocks in this environment.
The stock market has likely made a trading low for a rally to 449 to 453 on SPY. We discuss using Russian ETFs as a proxy for oil – this is an idea we have used over the years and the indicators suggest it is timely now.
Stocks probably have put in a short-term bottom, albeit a bit more volatile than we expected when we wrote the Weekly. For XLB, we could add positions here, and then later into June if the market has trouble in the second quarter.
SPY tested the support around 460 once again and now has the potential to bounce for the next couple of weeks. We think that this rally is part of a broadening top formation, and the next daily sell signal should give way to corrective behavior.
We do not think the market will make significant new highs in January, but we are not super concerned about a correction until the second quarter. If Platinum starts to weaken before Gold, that would be a sign that the metals’ advance is ending early.
The message here is that new client money should be going into “Value” and rebalancing of even high relative strength Tech positions should be undertaken, for those who have not done so. Oil should have some upside into the end of January, but we are still concerned about a seasonal short-term peak.
Stocks should trade up over the next few weeks or so as we have mentioned, and we would evolve some defensive strategies in advance of the end of the first quarter.
Indicators are overbought, so traders who have not sold trading positions should do so by Tuesday. Targets on GLD for a rally are to fill the gap on the Island Reversal (a negative technical pattern), a move to 172.50. Above that would target 175.
We would be looking at risk management and mitigation strategies early in 2022. We will say it appears to us that the fear of much higher rates is, at least for now, overdone.
Internal indicators actually improved a bit last week, but not enough to suggest we are out of the woods for 2022. Our conclusion here is that we should now start to add more value positions to portfolios.
Would a failure here to have more of a yearend advance mean next year would have less risk? UUP pattern is still up, but it may need to rest for a while as the weekly stochastic is in slight sell mode.
It is December options expiration week, and since the market had a spate of negative put call readings, we would expect this week to be up, at least until Thursday. Since JETS has held 20 with a daily stochastic recycle and an oversold weekly, it might be a good speculation on a milder Omicron variant.
We would use this rally to sell weak positions and rebalance overextended stocks. A move in TLT back below 150 would suggest a retest of the 145-area. This is still one of the strongest markets from the standpoint of accumulation.
Sentiment was the missing ingredient for a yearend rally and that has turned up. We still have concerns about next year. Some of those negative conditions could be ameliorated by a strong yearend rally.
